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Wednesday, May 27, 2009

Accenture Responds to Obama

(Via the Corner) In response to President Obama's plans to tax the foreign income of companies incorporated in places like the Bahamas, Accenture has decided to do this.

Technology outsourcing and consulting firm Accenture Ltd plans to change its place of incorporation to Ireland from Bermuda, following an exodus of large multinational companies to Europe as the U.S. government plans to tighten tax rules.

Accenture said on Tuesday it does not expect any material change in its financial results or tax treatment, but said Ireland will provide economic benefits. Its board unanimously approved the move.

"A member of the European Union, Ireland offers a sophisticated, well-developed corporate, legal and regulatory environment," Accenture Chief Executive William Green said in a statement.

We all remember that the Obama administration is planning on taxing the foreign income of domestic multi nationals even if all that income is kept abroad. Obama has claimed he will "close a loophole" that encourages company to take their business abroad. In fact, the result is not terribly unpredictable. What is happening, and what will happen, is that businesses will simply incorporate in countries that offer business friendly tax environments. The closing of this particular "loophole" is of course the opposite of business friendly.

I have spoken about Ireland's corporate tax structure on occasion. In the 1990's Ireland cut its corporate tax rate significantly. This created a boom for its economy as it attracted all sorts of business to the country to take advantage of the favorable tax rates.

President Obama would like to do the exact opposite. This is much like the equivalent of a city or state that relies on tourism imposing an extra tax on tourists because their presence increases crime and thus increases the costs to the local government. Such an imposition would of course drive off tourists who would all go to a city more inviting.

It's no different here. If you want to attract business, you offer business a friendly environment. Finding every single dollar to tax is not a friendly environment. It drives business away. This isn't merely basic governance but common sense. Ireland is an example of the stimulative effects of corporate tax cuts. Soon, the closing of this particular loophole will be an example of the contractionary effect of corporat tax increases.

3 comments:

Possible, but is your suggestion that tax cuts from the mid 1990's what caused those lay offs. The Irish economy did tank as a result partially because they got far too heavy in these very sub prime mortgages, but it has nothing to do with low corporate taxes.

I don't bring up Ireland because I want our economy to model Ireland. I bring up Ireland because I want to show what happens when an economy cuts corporate taxes.